The U.S. plan calls for U.S. and British personnel to guard six Palestinians wanted by Israel. In turn, Arafat would be allowed to leave his compound and move freely in the Palestinian areas of the West Bank and the Gaza Strip, the Israeli source said.

Mohammed Dahlan, a senior Palestinian security chief, said the U.S. plan had not been formally presented to the Palestinians. He noted that the Palestinians are opposed to "turning our prisoners over to the Israelis or allowing them to be imprisoned outside the Palestinian territories."

U.S. President George W. Bush raised the proposal Saturday in a telephone conversation with Sharon, and an official letter outlining it was sent by U.S. Secretary of State Colin Powell, according to Israel.

The United States Embassy in Israel declined to comment.

If the Palestinians accept the plan, it could end the long-running standoff at the shell-shattered compound. Arafat has been confined to the compound since early December, aside from a few brief trips into Ramallah. He has not been able to leave his office building in the center of the compound since March 29, the first day of Israel's military incursion into the West Bank.

The Israelis have sought custody of five Palestinians accused of involvement in the October killing of Tourism Minister Rehavam Zeevi, and a sixth man, accused of organizing a weapons shipment from Iran that was seized by Israel in the Red Sea in January.

The Palestinians have arrested the six and were holding them at a prison in Arafat's compound before the Israeli incursion. The six were moved into Arafat's offices to keep them out of Israeli hands.

Four of the men were convicted of Zeevi's killing in a brief trial last week, and they received sentences ranging from one to 18 years. Israel had insisted it wanted the men tried in Israel, but agreed to the U.S. compromise.

It was not clear exactly where the six wanted Palestinian men would be imprisoned, but sources said it would be somewhere in the Palestinian territories.

The Cabinet also held an extended debate on whether to cooperate with a U.N. fact-finding team that was scheduled to arrive Sunday to investigate Israel's military operation in the Jenin refugee camp.

The Cabinet meeting was still underway Sunday afternoon, more than six hours after it began.

The Israeli government has raised a variety of objections since the U.N. mission was proposed earlier this month, and Israeli radio stations reported that Sharon told the Cabinet he wanted another 24-hour delay in the team's arrival so Israel could try to iron out remaining differences.

Foreign Minister Shimon Peres, speaking before the Cabinet session, said the mission's mandate amounted to a search for a "blood libel" against Israel.

The three-person team has been delayed due to disagreements between Israel and the United Nations over the scope of the commission's work. The team was waiting in Geneva, Switzerland, for the Israeli decision before deciding what to do.

The team will look into Palestinian claims that hundreds of Palestinians, many of them civilians, were killed during fierce fighting in the camp from April 3-11.

Israel, which lost 23 soldiers in the battle, says about 50 Palestinians died, most of them gunmen.

So far, 48 Palestinian bodies have been recovered, according to the Jenin hospital. The toll has not risen in recent days, though more bodies may be buried under buildings that were flattened by Israeli bulldozers during the fighting.

Israel pushed for military and anti-terrorism experts to be included on the team, without success. U.N. Secretary-General Kofi Annan has included retired U.S. Maj. Gen. William Nash as a military adviser, but not as a full member of the team, which is headed by former Finnish president Martti Athisaari.

While Israel originally agreed to cooperate with the team, it has expressed concern that its composition and agenda are intended from the outset to find fault with Israel.

"Israel won't sit in the place of the accused," Peres said. "Israel will sit in the place of the accuser. This is an attempt to place baseless blame, almost a blood libel, on Israel."

If Israel decides not to cooperate with the team, the members will be regarded as "welcome tourists," said Zalman Shoval, a Sharon adviser. Israel could also prevent the commission from entering the camp if it wanted, he added.

Palestinian Cabinet minister Hassan Asfour said the United Nations should "not to comply with the Israeli stalling tactics and to send the fact-finding team to the occupied Palestinian territories promptly."

The main sticking points are Israel's request that it be allowed to decide which Israelis will testify, and that the team will not investigate Israel's military operations beyond the events in the Jenin refugee camp, Peres said.

Israeli forces entered Palestinian cities in the West Bank on March 29 following a string of suicide bombings in Israel. The incursion lasted more than three weeks and involved heavy fighting in several areas, and arrest sweeps that have taken more than 1,500 Palestinians into custody.

Israel has pulled its troops out of the cities except for Ramallah, where the soldiers surround Arafat's offices, and in Bethlehem, where Palestinian gunmen have been holed up inside the Church of the Nativity since April 2, with Israeli troops encircling the shine. Up to now, Israel has been demanding that the gunmen surrender to Israel or accept deportation. The Palestinians have proposed that they be transported to the Gaza Strip.

Israeli and Palestinian officials met Sunday in Bethlehem and planned another session later, the Israeli military said. A statement said several new ideas were raised and the talks were adjourned for consultations. No details were given.

Since the Israeli incursions into the West Bank, attacks against Israeli targets have declined, but not stopped.

No Israeli civilians had been killed for two weeks until a shooting Saturday in which Palestinian gunmen burst into the homes in a Jewish settlement and killed four people, including a 5-year-old girl. Seven people were wounded in the attack in Adora, a small settlement near the West Bank town of Hebron. The militant Hamas claimed responsibility in a statement issued Sunday.

Also, a Palestinian was shot and killed by Israeli troops Sunday near an army checkpoint outside Hebron, Palestinian security officials and witnesses said. The army did not immediately comment.